During pendency before settlement commission, assessee have right to contest assessment

The contention that during the pendency of case before settlement commission, the assessee must give up his right to contest the assessment order on merits is misconceived and must be rejected – Supreme Court

In a recent judgment, the Hon’ble Supreme Court rejected the stand of the Revenue that during the pendency of the case before settlement commission, the assessee must give up his right to contest the assessment order on merits.

ABCAUS Case Law Citation:
4869 (2025) (11) abcaus.in SC

In this case, survey action u/s.133A of the Act was carried out in premises of a Chartered Accountant and in the premises on respondent business entity. During the survey the CA was found to have created large number of bogus capital build up cases in the name of different persons by adopting various modus operandi. Further such funds were transferred to the various assessees of the business group. The said CA in his statement recorded during the survey accepted this fact and the director of the respondent entity in his statement recorded on oath u/s.131 of the Act had further confirmed and owned up the bank accounts and benamidars.

Thereafter, the respondent assessee filed application for settlement before the Settlement Commission. The Assessing Officer meanwhile passed an assessment order Section 143(3) of the Act.

The assessee filed an appeal before the CIT(Appeal) who dismissed the appeals without entering into the merits on account of the pendency of the application filed by the assessee before the Settlement Commission as per the provision of Section 245F(2) of the Act.

The Settlement Commission admitted the twenty applications of the business group of the respondent assesse under Section 245(H)(A) and subsequently disposed of all the settlement applications filed by the petitioner as abated on account of the amendment in the Act.

The order of the Settlement Commission was challenged before the Hon’ble High Court which by common order remanded the matter back to the Settlement Commission for fresh consideration.

Thereafter the report under Rule 9 of the Settlement Commissioner Rules was submitted by the CIT(Appeal) before the Settlement Commission and the assessee raised objections to the said report which was forwarded by the Settlement Commission to the Principal CIT.

The Principal CIT(1) vide letter submitted comments on the submission of the assessee and thereafter several hearing were conducted before the Settlement Commission in the proceeding under Section 245D(4) of the Act.

The assessee thereafter filed an appeal before the ITAT challenging the appellate order passed by the CIT(Appeal) with an application to condone the delay in preferring the appeal. The ITAT condoned the delay of almost twelve years and remitted the matter back to the CIT(Appeal) for fresh consideration on merits.

The Revenue preferred a Misc. Application before the Tribunal for recall of the remand order on the ground that there was a mistake apparent on record as the applications were pending before the Settlement Commission, the Tribunal could not have proceeded with the appeals filed by the assessee as the jurisdiction over the matter would lie before the Settlement Commission as per Section 245F(2) of the Act and the Tribunal had no jurisdiction to adjudicate the appeal.

It was further pointed out to the Tribunal that as the CIT(Appeal) had dismissed the appeal of the assessee for want of jurisdiction and the disposal was only for statistical purpose it was not an appealable order.

It was also pointed out to the Tribunal that there is mistake apparent on record as the Tribunal had relied upon the order in which the facts of cases were not identical as in the said cases the applications were not admitted by the Settlement Commission whereas in the case of the respondent assessee applications were admitted by the Settlement Commission.

However, the Tribunal dismissed the Miscellaneous applications. Being aggrieved the petitioner preferred petition before the Hon’ble High Court.

The Hon’ble High Court observed that the Tribunal had categorically held that the it had followed the decision of the Coordinate Bench of ITAT Ahmadabad on the similar facts to condone the delay.

The Hon’ble High Court further noted that the Revenue had not raised the ground with regard to the jurisdiction over the matter of respondent assessee lies with the Income Tax Settlement Commission by virtue of Section 245(F)(2) of the Act and the Tribunal has no jurisdiction to adjudicate the appeal as well as the CIT(Appeal) had only dismissed the appeal for statistical purpose and therefore the order was not an appealable order as the grounds are raised for the first time in the Miscellaneous Application filed by the petitioner.

The Hon’ble High Court held that there was no infirmity in the order passed by the Tribunal in condoning the delay and as the CIT(Appeal) did not adjudicate the issue on merits and dismissed the appeals of the respondent-assessee as not maintainable in view of the order passed by the Settlement Commission on the ground that the matters have abated, the Tribunal rightly remanded the matter back to the CIT(Appeal).

Not satisfied with the judgment of the High Court, the Department challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition.

Before the Hon’ble Supreme Court, the Revenue stated that the application before the Settlement Commission had not been decided, and an order under Section 245D(4) of the Income Tax Act, 1961, on the application is to be passed. It is only if the application for settlement is rejected without providing for terms of settlement that Section 245HA of the 1961 Act will be applicable and the appellate proceedings will stand revived.

The Hon’ble Supreme Court opined that the stand of the Revenue that the assessee must give up his right to contest the assessment order on merits, if the settlement application is rejected without providing for terms of settlement, is misconceived and must be rejected.

The Hon’ble Supreme Court held that in the peculiar facts of the case the Income Tax Appellate Tribunal was justified in condoning the delay, as well as setting aside the order of the Commissioner of Income Tax (Appeals) and restoring the first appeal.

Accordingly, the Apex Court dismissed the Special Leave Petition (SLP) with clarification that the Commissioner of Income Tax (Appeals) should keep the appellate proceedings in abeyance till the disposal of the application by the Settlement Commission in terms of the Act.

Download Full Judgment Click Here >>

• During pendency before settlement commission, assessee have right to contest assessment
• Entire amount of undisclosed money cannot be treated income but only profit embedded
• Penalty confirmed as loading point of the goods was different as declared in E- Way Bill
• Notice u/s 143(2) send by email fifty seconds before signing by AO not a legal notice
• Amount shown payable & receivable by both parties, not unexplained money – ITAT